Bijlage bij beantwoording technische vragen (PvdD) - 2023 Annual Report based on IFRS (FINAL compressed)

Customers in South Korea represented 25.2% of our 2023 total net sales and 28.6% of our 2022 total net sales. In addition, there are tensions with the Democratic People’s Republic of Korea (North Korea). A worsening of relations between those countries or the outbreak of war on the Korean Peninsula could impact our ability to service customers. A small percentage of our suppliers and customers as well as our customer support organization is based in Israel. There are tensions in this region that have resulted and may continue to result in violence and/or the outbreak of war that could impact our business.

From time to time, we may acquire businesses or technologies to complement, enhance or expand our current business or products or that might offer us growth opportunities. Any such acquisitions could lead to failure to achieve our financial or strategic objectives or our ability to perform as we plan or disrupt our ongoing business and adversely impact our results of operations. Our ability to complete such transactions may be hindered by a number of factors, including potential difficulties in obtaining government approvals, for example, anti-trust and/or inbound and outbound foreign direct investment approval processes. Any acquisition could pose risks related to the integration of the new business or technology with our existing business and organization. We may not be able to achieve the benefits we expect from an acquisition investment. Such transactions may also strain our managerial and operational resources and the challenge of managing new operations may divert our management from day-today operations. Furthermore, we may be unable to retain key personnel from acquired businesses or we may have difficulty integrating employees, business systems and technology. The controls, processes and procedures of acquired businesses may also not adequately ensure compliance with laws and regulations, and we may fail to identify compliance issues or liabilities.

In connection with acquisitions, antitrust and national security regulators have and may in the future impose conditions, including requirements to divest assets or other conditions that could make it difficult for us to integrate the businesses that we acquire. Furthermore, we may have difficulty in obtaining, or be unable to obtain, antitrust and national security clearances, which could inhibit future desired acquisitions. As a result of acquisitions, we have recorded a significant amount of goodwill and intangible assets. Accounting standards require periodic review of these assets for indicators of impairment. If one or more indicators of impairment are found to exist, then valuation of the related asset could change and may incur impairment charges.

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Risk factors (continued)

1. Strategy and products (continued) We may not be able to achieve our ESG objectives or adapt and respond timely to emerging ESG expectations and regulations Risk category: Climate change, Product stewardship Companies across all industries are facing increasing scrutiny of their ESG policies and practices. Investors, capital providers, shareholder advocacy groups, market participants, customers and other stakeholders are increasingly focused on ESG practices and ESG matters. In particular, within the semiconductor industry, there is a focus on contribution to society and minimizing environmental and social impacts of products throughout all life-cycle stages. Failure to achieve our ESG objectives, meet the emerging ESG expectations of our stakeholders and/or respond in a timely way to enhanced regulations, reporting and disclosure obligations could negatively affect our brand and reputation and impede our ability to recruit or retain employees, which may adversely affect our operations.

Climate change contributes to increasing severity and frequency of extreme weather events, rising sea levels and droughts that can impact continuity of our operations and/or our supply chain. Climate change concerns and the potential environmental impact of climate change have and may result in new laws and regulations that affect us, our suppliers and our customers. Such laws or regulations could cause us to incur additional direct costs for compliance, as well as increased indirect costs resulting from our value chain. Furthermore, the ability to improve our product-related environmental performance (such as energy efficiency) may be affected by the complexity of our technology and products. In order to meet our ESG goals and requirements, we are dependent on our suppliers and their ability to reduce their ecological footprints. In addition, we are dependent on our customers and/or our customers may not be satisfied with our progress, which can impact demand.

A global trend to transition to a lower-carbon economy has resulted in increased regulations that could lead to technology restrictions, modification of product designs, an increase in energy prices and energy or carbon taxes, restrictions on pollution, remediation measures, or other requirements that could impact our business and increase our costs. A variety of regulatory developments have been introduced that focus on restricting or managing carbon and GHG emissions. This could result in a need to redesign products and/or purchase at higher costs new equipment or materials with lower carbon footprints. We publish disclosures on ESG matters relating to our business and our partners as required by applicable regulations and guidance and other data which may not be required but which we nonetheless elect to disclose.

Such disclosures include statements based on our ESG goals, expectations and assumptions, including forecasts about costs and future circumstances, which may prove to be incorrect. In addition, our ESG sustainability strategy may not deliver the intended results, and our estimates concerning feasibility, timing and cost of meeting stated goals are subject to risks and uncertainties. This could result in us not meeting our goals on expected timing or at all. ESG disclosure requirements are increasing and authorities have proposed disclosure requirements on ESG matters which differ from the requirements that we are currently subject to. We face risks in complying with such regulations, including the risk of complying with requirements in different jurisdictions, costs associated with such compliance and potential liability in the event that our ESG disclosures prove incorrect.

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Risk factors (continued)

2. Finance and reporting We are exposed to financial risks including liquidity risk, interest rate risk, credit risk, foreign exchange risk and inflation Risk category: Financial As a global company, we are exposed to a variety of financial risks, including those related to liquidity, interest rates, credit, foreign exchange and inflation.

Liquidity risk Negative developments in our business or global capital markets could affect our ability to meet our financial obligations or to raise or refinance debt in the capital or loan markets. In addition, we might be unable to repatriate cash from a country when needed for use elsewhere due to legal restrictions or required formalities.

Interest rate risk

Currency risk

Inflation risk

Our Eurobonds bear interest at fixed rates. Our cash, investments and credit facilities bear interest at a floating rate. Failure to effectively hedge this risk could impact our financial condition and results of operation. In addition, we could experience an increase in borrowing costs due to a ratings downgrade (or the expectation of a downgrade), developments in capital and lending markets or developments in our businesses.

Our Financial Statements are expressed in euros. Accordingly, our results of operations are exposed to fluctuations in exchange rates between the euro and other currencies. Changes in currency exchange rates can result in losses in our Financial Statements. We are particularly exposed to fluctuations in the exchange rates between the US dollar and the euro, and to a lesser extent to the Japanese yen, the South Korean won, the Taiwanese dollar and the Chinese yuan, in relation to the euro. We incur costs of sales predominantly in euros, with portions also denominated in US and Taiwanese dollars. A small portion of our operating results are driven by movements in currencies other than the euro, US dollar, Japanese yen, South Korean won, Taiwanese dollar or Chinese yuan.

We are exposed to increases in costs due to inflation for costs of goods, transportation and wages, which may impact our profitability. We are experiencing higher-than-normal inflation, which impacts our costs and margins to the extent that we are not able to pass on increased costs in our prices.

Counterparty credit risk We are exposed to credit risk, particularly with respect to financial counterparties with whom we hold our cash and investments as well as our customers. As a result of our limited number of customers, credit risk on our receivables is concentrated. Our three largest customers (based on total net sales) accounted for €3,718.8 million, or 64.4% of accounts receivable and finance receivables at December 31, 2023 compared with €5,252.8 million, or 78.6%, at December 31, 2022. Accordingly, business failure or insolvency of one of our main customers could result in significant credit losses.

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3. Partners Our success is highly dependent on the performance of a limited number of critical suppliers of single-source key components Risk category: Supply chain disruption, Supplier strategy and performance We rely on outside vendors for components and subassemblies used in our systems, including the design thereof. These components and subassemblies are obtained from a single supplier or a limited number of suppliers. As our business has grown, our dependence on single suppliers or a limited number of suppliers has grown. The highly specialized nature of many of our components, particularly for EUV systems, means it is not economical to source from more than one supplier. In many cases, our sourcing strategy prescribes ‘single sourcing, dual competence’. Our reliance on a limited group of suppliers involves several risks, including a potential inability to obtain an adequate supply of required components or subassemblies in time and at acceptable costs, and reduced control over pricing and quality. Delays in supply of these components and subassemblies could occur due to disruptions experienced by our suppliers for reasons including work stoppages, fire, energy shortages, pandemic outbreaks, flooding, cyberattacks, blockades, sabotage or other disasters, natural or otherwise. This could lead to delays in delivery of our products, which could impact our business.

For example, certain of our suppliers experienced disruptions in their operations as a result of material shortages and cyberattacks. Consistent delays or prolonged inability to obtain adequate deliveries of components or subassemblies, or any other circumstance that requires us to seek alternative sources of supply, could significantly hinder our ability to deliver our products in a timely manner. This could damage relationships with our customers and materially impact our business.

The number of lithography systems we are able to produce is limited by the production capacity of one of our key suppliers, Carl Zeiss SMT, is our sole supplier of lenses, mirrors, illuminators, collectors and other critical optical components (which we refer to as optics). We have an exclusive arrangement with Carl Zeiss SMT. If this supplier became unable to maintain and increase production levels, we could be unable to fulfill orders. This could have a material impact on our business and damage relationships with our customers. Furthermore, if Carl Zeiss SMT were to terminate its supply relationship with us or be unable to maintain production of optics over a prolonged period, we would effectively cease to be able to conduct our business. From time to time, we experience supply constraints which can impact our production. In 2023, we were impacted by delays and shortages in our supply chain, resulting in a late start on the assembly of a number of systems. We and our suppliers are investing in additional capacity to meet the demand. However, increasing capacity takes time, and we may be unable to meet the full demand of our customers for a few years. Further, we face the risk that demand may decrease, which could result in overcapacity and loss of investment in increasing capacity.

In addition, most of our key suppliers, including Carl Zeiss SMT, have a limited number of manufacturing facilities, the disruption of which may significantly and adversely affect our production capacity.

Lead times in obtaining components have increased as our products have become more complex. A failure by us to adequately predict demand for our systems, or any delays in the shipment of components, can result in insufficient supply of components. This could lead to delays in delivery of our systems and could limit our ability to react quickly to changing market conditions. Conversely, a failure to predict demand could lead to excess and obsolete inventory.

We are also dependent on suppliers to develop new models and products to meet our development roadmaps. If our suppliers do not meet our requirements or timetable in product development, our business could suffer.

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Risk factors (continued)

3. Partners (continued)

4. People

A high percentage of net sales is derived from a few customers

Our business and future success depend on our ability to manage the growth of our organization and attract and retain a sufficient number of adequately educated and skilled employees

Risk category: Customer dependency

Risk category: Human resources, Knowledge management, Organizational effectiveness

Historically, we have sold a substantial number of lithography systems to a limited number of customers. Customer concentration can increase because of continuing consolidation in the semiconductor manufacturing industry. In addition, although the applications part of our holistic lithography solutions constitutes an increasing portion of our revenue, a significant portion of those customers are the same customers as those for our systems. Consequently, while the identity of our largest customers may vary from year to year, sales may remain concentrated among relatively few customers in any particular year. The recognized total net sales to our largest customer amounted to €8,772.9 million, or 31.8% of total net sales in 2023, compared with 7,046.9 million, or 33.3% of total net sales in 2022. In 2023, 53.9% of total net sales were made to two customers. The loss of any significant customer or any significant reduction or delay in orders by such a customer may have a material adverse effect on our business, financial condition and results of operations.

Our business success depends significantly on our ability to attract and retain employees, including a large number of highly qualified professionals. Competition for talent is intense and has intensified in recent years. Continuing to attract sufficient numbers of qualified employees to meet our growing needs will remain a challenge. Our business has grown significantly and the risk of not being able to attract, onboard and retain qualified personnel increases as our business grows. Our R&D programs require a large number of qualified employees. If we are unable to attract sufficient numbers of such employees, this could affect our ability to conduct R&D on a timely basis. The loss of key employees for unexpected reasons such as resignation or longterm illness is also a risk.

As a result of the uniqueness and complexity of our technology, qualified engineers capable of working on our systems are scarce and generally not available from other industries or companies. We invest a significant amount in educating and training our employees to work on our systems and their retention is a critical success factor for us. The increasing complexity of our products results in a longer learning curve for new and existing employees and suppliers. Our suppliers face similar risks in attracting and retaining qualified employees, including those in connection with programs that will support our R&D programs and technology developments. If our suppliers are unable to attract and retain qualified employees, this could impact our R&D programs or delivery of components to us.

Our organization has grown significantly in recent years. We may be unable to effectively manage, monitor and control our employees, facilities, operations and other resources. Our rapid growth driven by strong customer demand has put pressure on our organization and employee well-being. This may negatively impact the efficiency of our operations, our ability to comply with laws and regulations and our reputation as an employer.

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5. Operations We may face challenges in managing the industrialization of our products and bringing them to high-volume production

We are dependent on the continued operation of a limited number of manufacturing facilities

Risk category: Product industrialization

Risk category: Continuity of own operation

Bringing our products to high-volume production at a value-based price and in a cost-effective manner depends on our ability to manage the industrialization of our products and to manage costs. Customer adoption of our products depends on the performance of our products in the field. As our products become more complex, we face an increasing risk that products may not meet development milestones or specifications and may not perform according to specifications, including quality standards. If our products do not perform according to specifications and performance criteria, or if quality or performance issues arise, this may result in additional costs and reduced demand for our products. Our customers may not be able to meet planned wafer capacity. Transitioning newly developed products to full-scale production requires the expansion of infrastructure, including enhancing manufacturing capabilities, increasing the supply of components and training qualified personnel. It may also require our suppliers to expand their infrastructure capabilities. If we or our suppliers are unable to expand infrastructure as necessary, we may be unable to introduce new technologies, products or product enhancements, or to reach high-volume production of newly developed products on a timely basis or at all.

When we are successful in industrializing new products, it can take years to reach profitable margins. New technologies might not have the same margins as existing technologies, and we might not be able to adjust value-based pricing and/or cost in an effective manner. In addition, the introduction of new technologies, products or product enhancements also impacts ASML’s liquidity. New products may have higher cycle times, resulting in increased working capital needs. As our products become more complex, the investments needed before new product introduction and the timing of revenue recognition of these products may have a significant negative effect on our cost structure and margins. The capability, capacity and costs associated with providing the required customer support to cover the increasing number of shipments and service a growing number of EUV systems that are operational in the field could affect the timing of shipments. It could also impact the efficient execution of maintenance, servicing and upgrades, which are key to our systems continuing to achieve the required productivity.

All of our manufacturing activities, including subassembly, final assembly and system testing, take place in (cleanroom) facilities in Veldhoven, Oirschot (the Netherlands), Berlin (Germany), Wilton, San Diego (US), Pyeongtaek (South Korea), and Linkou and Tainan (Taiwan). These facilities may be subject to disruption for reasons including work stoppages, fire, energy shortages, pandemic outbreaks, flooding, cyberattacks, blockages, sabotage or other disasters, natural or otherwise. We cannot be sure that alternative production capacity would be available if a major disruption were to occur.

We are not able to fully insure our risk exposure and not all disasters are insurable. As a result, we may be subject to the financial impact of uninsured losses, which could have an adverse impact on our financial condition and results of operations.

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5. Operations (continued) We face challenges to meet demand

Our operations expose us to health, safety and environment risks

Risk category: Manufacturing and install, Human resources, Supplier strategy and performance

Risk category: Environment, health and safety

In recent years, we have experienced significant demand across all our market segments and product portfolio. This high level of demand brings challenges. We have and are continuing to increase production capacity in our end-to-end supply chain to meet demand, but we face challenges in increasing capacity. For example, we depend on our suppliers increasing their capacity and their ability to invest, and it takes time to build the production space and equipment required for expansion. We and our supply chain also need to obtain permits to make expansion possible, and the time it takes for these to be granted may cause delays.

It is a challenge for ASML and its suppliers to hire and retain employees to support expansion. Our processes and systems and that of our supply chain may also not be able to adequately support our growth. If we are not successful in increasing our capacity to meet demand, this could impact our relationships with customers and our competitive position. The increased demand and resultant supply constraints that we are continuing to experience lead to longer lead times for customers. This could result in customers changing their sourcing strategy to become less dependent on ASML, impacting our market share in certain product offerings.

Hazardous substances are used in the production and operation of our products and systems. Their use subjects us to a variety of governmental regulations relating to environmental protection and employee and product health and safety. This includes the transport, use, storage, discharge, handling, emission, generation, and disposal of toxic or other hazardous substances. In addition, operating our systems (which use lasers and other potentially hazardous systems) can be dangerous and can result in injury. Failure to comply with regulations could result in harm to people and environment. Substantial fines could be imposed on us, as well as suspension of production, alteration of our manufacturing and assembly and test processes, damage to our reputation and/or restrictions on our operations or sale or other adverse consequences.

Additionally, our products have become increasingly complex. This requires us to invest in ongoing risk assessments and development of appropriate preventative and protective measures for health and safety for both our employees (in connection with the production and installation of our systems and field options and performance of our services) and our customers’ employees (in connection with the operation of our systems). Our health and safety practices may not be effective in mitigating all health and safety risks. Failure to comply with applicable regulations, or the failure of our implemented practices for customer and employee health and safety, could subject us to significant liabilities.

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Risk factors (continued)

5. Operations (continued) Cybersecurity and other security incidents, or disruptions in our processes or information technology systems, could materially adversely affect our business operations Risk category: Security, Information technology, Process effectiveness and efficiency We rely on the accuracy, availability and security of our information technology (IT) systems. Despite the measures that we have implemented, including those related to cybersecurity, our systems could be breached or damaged by malware and systems attacks, natural or man-made incidents, disasters or unauthorized physical or electronic access. We have experienced some of these incidents in the past. We are experiencing an increasing number of cyberattacks on our IT systems as well as the IT systems of our suppliers, customers and other service providers, whose systems we do not control. These attacks include malicious software (malware), attempts and acts to gain unauthorized access to data, and other electronic and physical security breaches of our IT systems. They also include the IT systems of our suppliers, customers and other service providers that have led and could lead to disruptions in critical systems, unauthorized release, misappropriation, corruption, or loss of data or confidential information (including confidential information relating to our customers, employees and suppliers).

Further, we depend on our employees and the employees of our suppliers to appropriately handle confidential and sensitive data and deploy our IT resources in a safe and secure manner that does not expose our network systems to security breaches or the loss of data. Inadvertent disclosure, actions or malfeasance by our employees, those of our suppliers or other third parties have resulted and may in the future result in a loss or misappropriation of data or a breach or interruption of our IT systems. This could result in competitive harm and violate export controls and other laws and regulations which could result in fines and penalties, business disruption, reputational harm and additional regulatory scrutiny or export control measures. Any system failure, accident or security breach could result in business disruption, theft of our intellectual property or trade secrets, unauthorized access to, or disclosure of, customer, personnel, supplier or other confidential information, corruption of our data or of our systems, reputational damage or litigation and violation of applicable laws.

Furthermore, malware may harm our systems and software and could be inadvertently transmitted to our customers’ systems and operations. This could result in loss of customers, litigation, regulatory investigation and proceedings that could expose us to civil or criminal liabilities and diversion of significant management attention and resources to remedy the damages that result. We may also incur significant costs to protect against or repair the damage caused by these disruptions or security breaches, including, for example, rebuilding internal systems, implementing additional threat protection measures, providing modifications to our products and services, defending against litigation, responding to regulatory inquiries or actions, paying damages, or taking other remedial steps with respect to third parties. Further, remediation efforts may not be successful and could result in interruptions, delays or cessation of service, unfavorable publicity, damage to our reputation, customer allegations of breach-of-contract, possible litigation and loss of existing or potential customers that may impede our sales or other critical functions.

We also face the risk that we could unintentionally expose our customers to cybersecurity attacks through the systems we deliver to them, including in the form of malware or other types of attacks, which could harm our customers. Overall, cybersecurity incidents have not had a material impact on our results of operations. However, ASML’s visibility and importance for the semiconductor industry continues to increase. There is a risk that this may lead to actions that may adversely impact the security of ASML or the safety of its employees. In addition, processes and systems may not be able to adequately support the growth that we have experienced in recent years and continue to experience. From time to time, we implement updates to our IT systems and software which can disrupt or shut down our IT systems. We may not be able to successfully launch and integrate IT systems as planned without disruption to our operations.

Cybersecurity threats are constantly evolving. We remain potentially vulnerable to additional known or as yet unknown threats, as in some instances, we and our customers, partners and suppliers may be unaware of an incident or its magnitude and effects. Read more in How we manage risk and ESG integrated governance

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Risk factors (continued)

6. Legal and compliance We are subject to regulatory and compliance obligations in the various countries where we operate and as our business grows ensuring compliance becomes more challenging

Changes in taxation could affect our future profitability

Risk category: Violation of laws and regulations

Risk category: Tax and customs

We are subject to a variety of laws and regulations across the jurisdictions where we operate, including those relating to trade, national security, tax, export controls, reporting, product compliance, anti-corruption, antitrust, ESG, human rights, data protection, spatial planning and environmental matters. With the significant growth of our business in recent years, including an increase in our sales, operations, workforce and infrastructure, ensuring compliance with laws and regulations and our internal policies across our continually expanding organization has become more challenging. We face the risk that, despite our significant efforts and proactive approach to compliance, we may fail to comply with such laws, regulations or policies. As a result of our expanding international operations, we operate in a significant and growing number of countries in the world, and we are therefore subject to numerous and differing, and sometimes competing, regulatory frameworks, which can impact how we operate our business. In particular, the trade and national security regulatory environment has become increasingly restrictive, and as a result, our ability to sell some of our products and services to certain customers has been subject to restrictions, delays in shipments due to a requirement to obtain permits, and a prohibition on shipments of products to certain customers.

Laws and regulations that impact our business are regularly amended and we are subject to new laws and regulations, including in response to changing global geopolitical dynamics. We are also subject to the changing interpretations and positioning of regulators, including in the granting of required licenses to ship products as well as in investigations and enforcement. Additional or amended regulations or changes in policies of governments and regulators could increase compliance costs and risks associated with noncompliance or further limit our ability to sell our products and services in certain jurisdictions. We are subject to investigations, audits and reviews by regulatory authorities in the various jurisdictions where we operate regarding compliance with laws and regulations, including tax laws. These may arise due to misunderstandings, disputes, or suspicions of non-compliance or otherwise, and can be resource-intensive and have reputational and financial implications for us. Despite our efforts and proactive compliance program, we may be found to be non-compliant with applicable regulations. Compliance with existing and new regulations can result in compliance costs, increased risk of non-compliance and limitations on our business which can impact our results of operations.

The consequences of non-compliance include fines, penalties and litigation, as well as business disruption, the loss of trade or export privileges, reputational harm, additional regulatory scrutiny measures and the erosion of stakeholder trust, which could have a material adverse impact on our business and results of operations.

We are subject to income taxes in the Netherlands and other countries in which we are active. Our effective tax rate has fluctuated in the past and may fluctuate in the future. Changes in our business environment can affect our effective tax rate. The same applies to changes in tax legislation in the countries where we operate, together with developments driven by global organizations such as the Organization for Economic Co-operation and Development (OECD), as well as any change in approach to tax by tax authorities. These initiatives have already resulted in and may result in further increased compliance obligations for ASML. Additionally, this may result in an increase in our effective tax rate in future years.

Changes in tax legislation may adversely impact our tax position and consequently our net income. Our worldwide effective tax rate is heavily impacted by R&D incentives included in tax laws and regulations in the countries where we operate. Examples include the so-called innovation box in the Netherlands and the R&D credits we obtain in the US. If jurisdictions alter their tax policies/ laws in this respect, it may have an adverse effect on our worldwide effective tax rate. In addition, jurisdictions levy corporate income tax at different rates. The mix of our sales over the various jurisdictions in which we operate may vary from year to year, resulting in a different mix of corporate income tax rates applicable to our profits. This can also affect our worldwide effective tax rate and impact our net income.

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7. Other risk factors Restrictions on shareholder rights may dilute voting power

We may not declare cash dividends, conduct share buyback programs or cancel shares at all or in any particular amounts in any given year

ASML's Articles of Association provide that it is subject to the provisions of Dutch law applicable to large corporations, called ‘structuurregime’. These provisions concentrate control of certain corporate decisions and transactions in the hands of the Supervisory Board. As a result, holders of ordinary shares may have more difficulty in protecting their interests in the face of actions by members of the Supervisory Board than if we were not subject to the ‘structuurregime’.

We aim to pay a quarterly dividend that is growing (on an annualized basis) over time, and we conduct share buybacks from time to time. The dividend proposal, amount of share buybacks and cancellation of shares in any given year is subject to the availability of distributable profits, retained earnings and cash. It may also be affected by, among other factors, the Board of Management’s views on our potential future liquidity requirements, including for investments in production capacity and working capital requirements, the funding of our R&D programs and for acquisition opportunities that may arise from time to time, and by future changes in applicable tax and corporate laws (for example plans of the Dutch government to tax share buy backs).

Our authorized share capital includes a class of cumulative preference shares. We have granted our preference shares foundation (Stichting Preferente Aandelen ASML), an option to acquire, at the nominal value of €0.09 per share, such cumulative preference shares. Exercise of the preference share option would effectively dilute the voting power of our outstanding ordinary shares by one-half, which may discourage or significantly impede a third party from acquiring a majority of our voting shares.

The Board of Management may decide not to pay a dividend or to pay a lower dividend and may suspend, adjust the amount of or discontinue share buyback programs, or we may otherwise fail to complete buyback programs.

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Developing our competitive advantage In conversation with our Executive Vice President and Chief Business Officer Christophe D. Fouquet on his responsibility for the ESG sustainability strategy

Q

Why is ESG sustainability such an important topic for ASML?

Christophe: ESG sustainability is a key challenge for all companies because it is a challenge for the world in general. In our personal lives as well as our working lives, everybody is increasingly aware of how our actions impact the world beyond our immediate horizons. Almost everything we do at ASML – from how we design and deliver solutions to the technologies our products enable for the end users of technology – can affect the environment or society.

Where I think ASML is different to other companies lies in how we are working to manage that impact. Our ESG sustainability strategy is now established and driving progress toward more inclusive and sustainable growth for all. As Chief Business Officer, I’m responsible for this strategy at Board level, and I work closely with the total organization to make sure it delivers on its promises. Our core belief is that ESG sustainability is not a fluffy nice-to-have attribute or something you do with reluctance because of regulation. For us, ESG sustainability is a real competitive advantage and we embrace it wholeheartedly. It powers our innovation mindset because it underpins diversity and inclusion, and it forms the structure against which we can measure our impact on the world.

are the main aims of Q What the ESG sustainability strategy? Christophe: We provide comprehensive details on how we aim to deliver on our ESG sustainability commitments, as on page 69, but its main objectives can be broken down into the three E, S and G areas. Regarding the Environment, we are working to reduce the environmental footprint of our operations and supply chain as well as the environmental impacts of our products and services. In the Social arena, we aim to have positive impact by providing an attractive workplace, ensuring a responsible supply chain, supporting an innovation ecosystem and being a valued partner in our communities. And looking at Governance, we take an integrated, responsible approach that considers the needs of all our stakeholders.

For us, ESG sustainability is a real competitive advantage and we embrace it wholeheartedly.” Christophe D. Fouquet Executive Vice President and Chief Business Officer On November 30, 2023, the Supervisory Board of ASML announced its intention to appoint Christophe Fouquet, currently ASML’s Chief Business Officer and member of the Board of Management, as the company’s next President and Chief Executive Officer. The appointment is subject to notification of the Annual General Meeting of shareholders on April 24, 2024.

are ASML’s Q Where greatest ESG challenges? Christophe: Our environmental commitment is clear and unequivocal: We expect to meet our target of net zero scope 1 and 2 emissions by 2025. We have also committed to achieving net zero emissions in our supply chain by 2030, and with our customers by 2040. The question is no longer about where we want to get to, but how fast we can get there. Is it possible to do more and go even faster? That is an area where our teams are working hard internally, on our own emissions, and also with our suppliers and customers.

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Developing our competitive advantage (continued) In conversation with our Executive Vice President and Chief Business Officer Christophe D. Fouquet on his responsibility for the ESG sustainability strategy

Diversity is a true strength of ours as well as one of the key challenges we are addressing through the social element of the strategy. Our success springs from innovation and teamwork delivered by very effective, highperforming people. We believe that it is vital to have people who look at things differently – who come from different backgrounds, cultures and experiences. Although 144 different countries are represented in our workforce, there is an opportunity to be even more diverse. But we can only hire a diverse set of employees if education systems across the world provide them. When only around 25% of STEM

Our success springs from innovation and teamwork delivered by very effective, high-performing people.” Christophe D. Fouquet Executive Vice President and Chief Business Officer

students are women, it is difficult to have a higher percentage in the business. This is why we engage so deeply with educational institutions – not only high schools and universities but also primary schools – because we need to show young children that a career in science and technology is a good and realistic option. From a governance perspective, transparency and responsibility around our governance capability are non-negotiable. We are fully committed to complying with laws and regulations and are focused on internalizing upcoming legislation, such as

the Corporate Sustainability Reporting Directive (CSRD), which is phased in from the start of 2024 and raises the bar on ESG matters. But it is important to emphasize that we see ESG as far more than a compliance topic – we regard it as the right thing to do to secure the long-term success of our company. Our ESG sustainability activities are right for the people who work for us, right for everyone in our ecosystem and right for everybody on the planet.

the semiconductor Q Does industry have a positive or negative influence on the environment? Christophe: I think our industry is on the positive side of the equation, because the benefits of the technologies, products and services we enable far outweigh the negatives. Of course, you can’t ignore the fact that double-digit growth for many years has led to an increase in the semiconductor industry’s environmental footprint. Energy consumption by fabs and server farms is significant, and this adds to the energy used by the everyday electronics we all depend on. So at first glance our industry has a negative impact on the environment. On the other hand, semiconductors are essential to many of the technologies that aim to reduce energy consumption and emissions, such as electrification, smart grids and the whole energy transition. For example, smart grids

cannot exist without microprocessor-based measurement, control and switching. As an industry leader, we're keen to share our expertise and use our influence to persuade our peers and our ecosystem to focus on sustainability. We were one of the founding members of the Semiconductor Climate Consortium (SCC) of the industry body SEMI, and we take part in many conferences every year. We also regularly engage with our customers, suppliers and others to identify ways to further reduce the industry’s emissions. We not only talk with our suppliers about how they can do this, but also walk alongside them and give them realistic incentives to improve their environmental performance. For customers, ASML’s EUV systems already use 30-40% less energy per wafer pass than they did five years ago, and we plan to improve this by another 30-35% by 2025.

Q

How important are ASML’s people to the company’s success?

Christophe: Our vision is to enable groundbreaking technology to solve some of humanity’s toughest challenges. We empower our people to deliver that vision by ensuring they are proud to work with us and engaged with our ambitions. One of the reasons why talented individuals choose to work at ASML is because they want to make a positive contribution to the world. They want more than a career – they

want to help develop solutions that will ultimately transform everything from healthcare and transport to how humanity combats climate change. We help them achieve those broad aims in many different ways. For example, we are ramping up our Community Partnership Program and aim to spend €2,500 per employee per year by 2025 on community projects that support education, inclusivity and ESG innovation as well as very practical initiatives that address local needs, such as the lack of housing in the Veldhoven area, close to our headquarters. Our teams worldwide are similarly energized in identifying opportunities where we can make a difference.

would you sum up Q How ASML’s commitment to ESG sustainability? Christophe: ASML has a big responsibility to lead the way on ESG sustainability. Not long ago, we were the biggest company that nobody had ever heard of. That’s very different now, and with increased profile comes increased responsibility. People look up to us – so, by becoming role models on issues such as reducing our environmental footprint or increasing our diversity and inclusivity, we can inspire others to make good progress themselves.

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ESG at a glance To be a sustainability leader, we must drive progress toward a sustainable society. This means enabling ground-breaking technology that solves some of humanity’s toughest challenges.

Our contribution to a digital, sustainable future Increasing digitalization can pave the way to a society that is more environmentally and socially sustainable for everyone. The large-scale digitalization that is required to achieve a sustainable future relies on the semiconductor industry’s ability to produce faster, more powerful microchips that are energy-efficient and affordable. Together with our partners, we provide the patterning solutions that can help make this possible. The benefits our industry brings come at a cost, including energy and resource use. We are committed to innovating and investing to enable our company and the industry as a whole to reduce these and other negative impacts.

Our vision is to enable ground-breaking technology that solves some of humanity’s toughest challenges

1

Grow our holistic lithography business

>2

Secure unique supply chain capabilities to ensure business continuity

>3

Move toward adjacent business opportunities

>4

Deliver on our ESG sustainability commitments

Environmental

Social

Governance

Read more on page 74 >

Read more on page 103 >

Read more on page 154 >

We want to help drive expanding computing power while minimizing waste, energy use and emissions. Our focus on energy efficiency and climate action, and the circular economy, is fundamental to achieving this goal.

We also want to deliver responsible growth that benefits all our stakeholders – to provide an attractive workplace for all, build a responsible supply chain, fuel innovation in our ecosystem and be a valued partner to communities.

As a foundation, we commit to act on our responsibilities and anchor them across our entire business through integrated governance, engaged stakeholders and transparent reporting.

Energy efficiency and climate action page 75 >

Circular economy page 90 >

Attractive workplace for all page 106 >

Responsible supply chain page 125 >

ESG Integrated governance page 155 >

Innovation ecosystem page 136 >

Valued partner in our communities page 145 >

Transparent reporting page 173 >

Our ESG sustainability strategy is underpinned by targets which are detailed across the following pages

Engaged stakeholders page 36 >

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Our material ESG sustainability topics To create long-term value for our stakeholders, we focus our strategy on the sustainability topics where we can have the greatest impact.

Why it matters Environmental, social and governance (ESG) topics have become increasingly important to our customers, employees, suppliers, shareholders and society. We aim to respond to the continuously evolving needs of our stakeholders in the best way with our ESG sustainability strategy.

How we’re managing our impact When we act sustainably as a business, it benefits everyone. We want to grow our company and increase our positive impact while minimizing our negative impacts on the environment and people. We do this by focusing on the ESG sustainability topics where we can have the biggest impact. For these so-called material topics, we define policies, targets and actions, and disclose progress against them in our ESG sustainability reporting. Environmental – We want to continue to expand computing power but with minimal waste, energy use and emissions. Our focus is on energy efficiency and climate action, and the transition to a circular economy. Social – We want to ensure responsible growth that benefits all stakeholders – to provide an attractive workplace for all, build a responsible supply chain, fuel innovation in our ecosystems and be a valued partner to communities. Governance – We want to anchor our responsibilities in the way we do business through integrated governance, engaged stakeholders and transparent reporting.

We update our material topics annually using insights from ongoing stakeholder engagement, developments within ASML and the evolving context in which we operate. In 2023, a double materiality assessment was conducted as input for the ESG sustainability strategy and in preparation for the CSRD requirements that are currently being phased in. Double materiality reflects the following: (1) our most significant impacts on people and the environment, and (2) the most significant sustainability-related risks and opportunities affecting our value drivers, competitive position and long-term shareholder value creation. We used the 'impact' part of this assessment to determine the material topics for this Annual Report, in line with GRI (Global Reporting Initiative) requirements. Our process for determining impact materiality can be summarized in four steps, as shown on the right of this page. The assessment identified three new topics for 2023: Pollution of air, training and development, and quality of life.

How we identified our material topics Step 1: Understand the context

Step 2: Identify sustainability matters and impacts

Identifying affected stakeholders and users of sustainability information is the foundation of our materiality assessment process. We identify five relevant stakeholder groups: customers, employees, suppliers, shareholders and society. We continually engage with these groups to understand their concerns and how their interests may be impacted. This engagement informs improvement actions and feedback on performance and progress.

We use the insights gained from stakeholder engagement and other relevant sources to identify sustainability matters and impacts that are relevant to us. This results in an overview that includes positive and negative, actual and potential, and short-, medium- and long-term impacts. The aim of the overview is to cover all impacts that might be material, considering our business activities and relationships across our value chain.

Read more in Our business model - Engaging with our stakeholders

Step 3: Assess the significance of the impacts

Step 4: Prioritize the most significant impacts

ASML subject matter experts assess the materiality of negative impacts based on scale, scope and irremediable character, also referred to as severity. In case of potential impacts, likelihood is considered. The materiality of positive impacts is assessed based on scale and scope, and, in case of potential impacts, likelihood. For potential negative human-rights-related impacts, severity takes precedence over likelihood.

The assessment results in a materiality score for each impact, and we use these materiality scores to determine thresholds for materiality. Thresholds are determined separately for negative impacts and positive impacts, as these cannot always be compared. Impacts that meet the materiality threshold are clustered into material sustainability matters. The outcomes of the materiality assessment are used to shape our strategy and targets, with the aim of sustainable long-term value creation for all our stakeholders. The Board of Management sets this strategy.

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Our material ESG sustainability topics (continued)

Material topics (positive or negative, actual or potential) which are considered material for 2023 based on the materiality assessment Material topic name

Material impacts

Positive or negative impact

Actual or potential impact

Impact area value chain

Please read more in

Energy management & carbon footprint – Operations

Impact on climate change through energy use and GHG emissions from manufacturing, buildings, business travel and employee commuting

Negative

Actual

Own operations

Energy efficiency and climate action – Emissions from our own operations – Manufacturing and buildings and Business travel and commuting

Energy management & carbon footprint – Supply chain Energy management & carbon footprint – Product use

Impact on climate change through energy use and GHG emissions from purchased goods and services and logistics

Negative

Actual

Upstream – suppliers

Impact on climate change through energy use and GHG emissions from use of our products at our Negative customers

Actual

Downstream – customers

Energy efficiency and climate action – Emissions from our supply chain (including logistics) Energy efficiency and climate action – Emissions from product use at our customers

Energy management & carbon footprint – Downstream impact Pollution of air

Impacts in the ICT industry and society through the use of our customers' products in all kinds of Positive and negative applications that contribute to climate change or support climate change mitigation and adaptation

Actual

Downstream – beyond customers

Impacts on the environment through emission of nitrogen oxides (NOx), non-methane volatile organic compounds (NMVOC) and hydrogen (H2) from manufacturing

Negative

Actual

Own operations

Circular economy

Impacts on the environment through resource use and waste related to systems, parts, tools, packaging, real estate and non-product-related activities

Negative

Actual

Circular economy

Impact on the transition to a regenerative and circular economy through the use of our customers' products in all kinds of applications

Positive and negative

Actual

Downstream – beyond customers

Circular economy

Diversity and inclusion

Impact on employees by providing equal opportunities for all, including gender equality, fair remuneration, measures against discrimination and harassment, and promotion of diversity and inclusion

Positive

Actual

Own operations

Attractive workplace for all – Inspiring a unified culture

Energy efficiency and climate action

Energy efficiency and climate action – Emissions from our own operations – Manufacturing and buildings Own operations & customers Circular economy

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Our material ESG sustainability topics (continued)

Material topics (positive or negative, actual or potential) which are considered material for 2023 based on the materiality assessment (continued) Material topic name

Material impacts

Positive or negative impact

Actual or potential impact

Impact area value chain

Please read more in

Talent attraction, employee engagement and retention

Impact on employees' well-being through labor conditions, including social protection, fair remuneration practices, freedom of association and collective bargaining, and existence of works councils

Positive

Actual

Own operations

Attractive workplace – Providing the best employee experience

Training and skills development

Impact on employees’ well-being and careers by providing training and development opportunities

Positive

Actual

Own operations

Attractive workplace – Providing the best employee experience

Occupational health and safety

Impacts on employee health, safety and well-being in case of incidents with hazardous substances Negative or systems and work-related pressure on physical and mental health

Potential

Own operations

Attractive workplace – Ensuring employee health and safety and Providing the best employee experience

Responsible supply chain and product stewardship

Potential impacts on the environment and workers in the supply chain, including labor conditions, forced and child labor, and management of those impacts through product stewardship and supply chain due diligence

Positive and negative

Potential

Upstream – suppliers

Responsible supply chain

Innovation ecosystem

Impacts in society through supporting the innovation ecosystem and contributing to R&D, public – private partnerships, academic, industry and other research, STEM education and ESG innovation

Positive

Actual

Downstream – beyond customers

Innovation ecosystem and Valued partner in our communities

Community engagement

Impacts on local communities through job creation and pressure on housing, infrastructure, social cohesion and access to talent

Positive and negative

Actual

Own operations

Valued partner in our communities

Quality of life

Impacts on people’s well-being, health, safety and human rights through the use of technology in all kinds of applications that affect quality of life

Positive and negative

Actual

Downstream – beyond customers

Responsible supply chain

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Contributing to the UN's Sustainable Development Goals The UN’s 2030 Agenda for Sustainable Development provides a shared blueprint for peace and prosperity, for people and planet, now and in the future. Why it matters The UN’s Sustainable Development Goals (SDGs) represent the global sustainable development agenda and inform public policy. As a responsible business, we support the SDGs, and it is critical that we accelerate action to play our part. Our ESG sustainability strategy supports this ambition, focusing on the six SDGs where we can contribute most. We also became a signatory to the UN Global Compact in 2023. How we’re managing our contribution We contribute to SDG 4 (Quality education) by developing our people and promoting lifelong learning opportunities for the communities where we operate. SDG 8 (Decent work and economic growth) is covered by our commitment to provide an attractive workplace that promotes sustained, inclusive growth, full and productive employment, and decent work for all throughout our supply chain, including protecting labor rights and promoting a safe and secure working environment for everyone. Our contribution to SDG 9 (Industry, innovation and infrastructure) is demonstrated by our work to build a resilient ecosystem that fosters innovation while promoting inclusive and sustainable industrialization.

We contribute to SDG 11 (Sustainable cities and communities) by working with our community outreach partners to make cities and human settlements inclusive, safe, resilient and sustainable. We contribute to SDG 12 (Responsible consumption and production) via our circular economy work and our work to achieve environmentally sound management of chemicals and all wastes throughout their life cycles, in accordance with agreed international frameworks. We contribute to SDG 13 (Climate action) by promoting energy efficiency and climate action across our value chain.

SDG 4

Quality education

Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all

SDG 11

Sustainable cities and communities Make cities and human settlements inclusive, safe, resilient and sustainable

Our contribution

Our contribution

– Attractive workplace for all Read more on page 106 >